The Russia–Ukraine gas disputes refer to a number of disputes between Ukrainian oil and gas company Naftohaz Ukrainy and Russian gas supplier Gazprom over natural gas supplies, prices, and debts. These disputes have grown beyond simple business disputes into transnational political issues—involving political leaders from several countries—to the point of threatening natural gas supplies in numerous European countries dependent on natural gas imports from Russian suppliers which are transported through Ukraine. Russia provides approximately a quarter of the natural gas consumed in the European Union; approximately 80% of those exports travel through pipelines across Ukrainian soil prior to arriving in the EU.[1]
A serious dispute began in March 2005 over the price of natural gas supplied and the cost of transit. During this conflict Russia claimed Ukraine was not paying for gas, diverting gas exported to EU from the pipelines. Ukrainian officials at first denied the accusation [2][3], but later Naftohaz Ukrainy admitted that natural gas intended for other European countries was retained and used for domestic needs. The dispute culminated on January 1, 2006 when Russia cut off all gas supplies passing through Ukrainian territory.[4] On January 4, 2006, a preliminary agreement between Russia and Ukraine was achieved and the supply was restored and the situation calmed until October 2007 when new disputes began over Ukrainian gas debts. This led to reduction of gas supplies in March 2008. During the last months of 2008, relations between became tense once more when Ukraine and Russia could not agree on the debts owed by Ukraine.[5]
In January 2009, this disagreement resulted in the supply disruptions many European nations with eighteen European countries reporting major falls or cut-offs of their gas supplies from Russia transported through Ukraine.[6][7] In September 2009 officials from both countries stated they felt the situation was under control and that there would be no more conflicts over the topic.[8][9], until at least the Ukrainian 2010 presidential elections[10], but in October 2009 another disagreement arose about the amount of gas Ukraine would import from Russia in 2010. Ukraine intended to import less gas in 2010 as a result of its economic recession. Due to this fact industries require far less gas, however, Gazprom insisted that Ukraine fulfill its contractual obligations and purchase previously agreed upon quantities of gas.[11]
On June, 8, 2010, a Stockholm court of arbitration ruled Naftogaz of Ukraine is to return 12.1 bcm of gas to RosUkrEnergo, a Swedish-based company which Gazprom controls a 50% stake. The gas was siphoned from pipelines passing through Ukraine in 2009.[12][13] Several high-ranking Ukrainian officials stated the return "would not be quick".[14]
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After the collapse of the Soviet Union, oil import prices to Ukraine reached world market levels in 1993, however gas import prices and transit fees below European levels for Russian exports to Europe through pipelines in Ukraine were set in bilateral negotiations.[15] At the same time Ukraine remained the main transit corridor for Russia's gas export. In 2004–2005, about 80% of Russian gas exports to the European Union were made through Ukraine.[16][17] Two-thirds of Gazprom's revenue comes from the sale of gas that crosses Ukraine.[18]
Ukraine's own annual gas consumption was in 2004–2005 around 80 billion cubic meters (bcm), of which around 20 bcm were produced domestically, 36 bcm were bought from Turkmenistan, and 17 bcm were received from Russia in exchange for transport of Russian natural gas. The remaining 6–8 bcm were purchased from Russia.[19] The gas trading system differed substantially from the gas sale to the European Union and caused problems in the form of large-scale deliveries of relatively cheap Russian gas causing increase of energy-intensive industries and supporting Ukraine's status as one of the world's least energy-efficient countries and largest gas importers, the accumulation of Ukrainian debts and non-payment, unsanctioned diversion of gas and alleged theft from the transit system, and Russian pressure on Ukraine to hand over infrastructure in return for relief of debts accumulated over natural gas transactions.[15]
Gas trading was conducted under framework of bilateral intergovernmental agreements which provided for sales, transit volumes, gas prices, gas storage, and other issues such as the establishment of production joint ventures. Commercial agreements were negotiated between the relevant companies within the guidelines and dictates of that framework and supplemented by annual agreements made between parties specifying exact prices and volumes for the following year. Gas sales prices and transit tariffs were determined in relationship to each other.[15] Commercial agreements and trade relations have been non-transparent and trade has conducted by via intermediaries such as Itera, EuralTransGaz, and RosUkrEnergo. RosUkrEnergo's involvement in the Russian-Ukrainian gas trade has been controversial. There are allegations that the company is controlled by Semion Mogilevich and its beneficiaries include of well-placed officials in the Russian and Ukrainian gas industries and governmental structures related to the energy sector.[18][20] Russian Prime Minister Vladimir Putin has accused that RosUkrEnergo is owned by a business ally of Ukraine's President Viktor Yushchenko.[21] The Ukrainian investigation into RosUkrEnergo, during Yulia Tymoshenko's previous term as Prime Minister, was closed after she was fired by Yushchenko in September 2005.[22]
According to a contract between Gazprom and Naftohaz, signed on 21 June 2002, payment for the transfer of Russian natural gas through Ukrainian pipeline system had been made in exchange – for no more than 15% of gas pumped through the Ukrainian territory to be taken in lieu of cash. This contract was supposed to be valid until the end of 2013. On 9 August 2004, the two companies signed an addendum to the contract, according to which the amount of gas given as a payment was calculated based on a tariff of $1.09(USD) for the transportation of 1,000 cubic meters of natural gas over a distance of 100 kilometres (62 mi);the addendum further stated the price of the natural gas supplied for Ukraine was to be $50 per 1,000 cubic meters (approximately $1.40 per million Btu).[23] This price was constant notwithstanding the gas prices in the European markets.[24] According to the addendum the price was not subject to changes until the end of 2009.[23] Gazprom argued that this addendum was only applicable provided that the two countries sign an annual intergovernmental protocol that has higher legal status for specifying the terms of gas transit.[25] According to Gazprom, the addendum becomes void as the annual protocol had not been signed for 2006 under the required terms.[26] Russia claimed that Gazprom's subsidies to the Ukrainian economy amounted to billions of dollars.[27]
According to the agreement of 2006, RosUkrEnergo was to receive no more than 20 percent of the total delivered gas, which in 2007 was 15 bcm of 73 bcm.
Initial disputes concerning gas debts and non-payment appeared immediately after the collapse of the Soviet Union. As a result of disputes over non-payments by Ukraine, Russia suspended natural gas exports several times between 1992 and 1994. This led to the illicit diversion of Russian natural gas exports from transit pipelines by Ukrainian companies and institutions in September 1993 and November 1994. The siphoning of gas was acknowledged by Ukraine, while accusations of other diversions were disputed.[15] In September 1993, at a summit conference in Massandra, Crimea, Russian President Boris Yeltsin offered to Ukrainian President Leonid Kravchuk to forgive Ukrainian debts in return for control of the Black Sea Fleet and Ukraine's nuclear arsenal. After strong negative reaction from politicians in Kiev, the idea was abandoned.[15] An intergovernmental agreement was drafted on gas issues, including a clause stating Ukraine would permit Gazprom to participate in the privatization of Ukrainian enterprises in the gas and other sectors. In March 1994, a Ukrainian deputy prime minister agreed with Russia that Gazprom could acquire a 51% stake in the pipeline system. In early 1995, Russia and Ukraine agreed to create a joint company —Gaztransit— to operate Ukraine's natural gas transit infrastructure in exchange for the cancellation of a substantial portion of Ukraine's debts to Russia. However these agreements were never implemented and in November 1995 the Verkhovna Rada, Ukraine's parliament, adopted a law prohibiting the privatization of oil and gas assets.[15]
In 1998, Gazprom and Naftohaz made a contract, under which Gazprom would pay for the transit of volumes of gas which established a link between gas prices and transit tariffs. However this contract did not resolve the issue of gas debts.[15] In 1998, Gazprom alleged that Ukraine had illegally diverted gas in meant for export to other European countries and suspended exports of oil and electricity to Ukraine in 1999. Gazprom also claimed that Ukraine's gas debt had reached $2.8 billion.[16] In 2001, then Deputy Prime Minister Oleh Dubyna acknowledged that in 2000 alone 8.7 bcm of Russian natural gas had been siphoned off from export pipelines.[15] The debt issue was settled on October 4, 2001, by signing intergovernmental agreement on Additional Measures Regarding the Provision of Transit of Russian Natural Gas on the Territory of Ukraine (the 2001 Transit Agreement).[16]
In 2005, negotiations over gas prices for 2006 started. Gazprom insisted on a new price of about $160 per 1,000 cubic meters. The Government of Ukraine agreed, with the stipulation that price increases were to be gradual, in return for increased gas transit fees and changing the payments for transit from payment in kind to cash.[28] In May 2005, it was revealed that 7.8 bcm of gas which Gazprom had deposited in Ukrainian storage reservoirs during the previous winter had not been made available to the company. It remained unclear if the gas was missing, had disappeared due to technical problems, or had been stolen.[29] This issue was resolved in July 2005 by agreement between Gazprom, Naftohaz and RosUkrEnergo, according to which Naftohaz received 2.55 bcm of gas as partial settlement of the Russian gas transit over 2005 services and 5.25 bcm was sold by Gazprom to RosUkrEnergo who has to receive it from Naftohaz.[30] However, the negotiations between Gazprom and Naftohaz over gas prices and a new gas supply agreement failed.[31] On 1 January 2006 Gazprom started reducing the pressure in the pipelines from Russia to Ukraine.[31]
Although Russia cut off only supplies to Ukraine, a number of European countries saw a drop in their supplies.[3] The European Commissioner for Energy Andris Piebalgs and several affected member states warned that blocking of gas deliveries is unacceptable. Pascal Lamy, director general of the World Trade Organisation, expressed opinion that all Post-Soviet states should pay market prices for their energy needs in order to improve the efficiency of their economies.[32]
The supply was restored on 4 January 2006, after the preliminary agreement between Ukraine and Gazprom was settled.[33] The five year contract was signed, although with the prices set for six months only. According to the contract, the gas was sold not directly to Naftohaz, but to the Russian-Swiss company RosUkrEnergo. The price of natural gas sold by Gazprom to RosUkrEnergo rose to $230 per 1,000 cubic metres, which after mixing it with two thirds of cheaper supplies from Central Asia was resold to Ukraine at a price of $95 per 1,000 cubic metres.[34][35] The parties also agreed to raise the tariff for transit from US$1.09 to US$1.60 per 1,000 cubic meters per 100 km;; this applied not only the transit of Russian gas to Europe, but also Turkmen gas through Russia to Ukraine. On 11 January 2006, Presidents Vladimir Putin and Viktor Yushchenko confirmed that the conflict had concluded.
As one possible reason of this conflict that has been mentioned is the more pro-NATO and European Union-style approach of the new 'orange' Government of Ukraine. Russia disagreed with this assertion, stating the cause that they did not want to subsidize former Soviet republics.[36]
On 2 October 2007 Gazprom threatened to cut off gas supplies to Ukraine because of unpaid debt of $1.3 billion.[37] This dispute appeared to be settled on 8 October 2007.[38] On 5 January 2008 Gazprom warned Ukraine that it would reduce its gas supplies on 11 January 2008 if $1.5 billion in gas debts were not be paid.[39] Presidents Putin and Yushchenko announced on 12 February 2008 an agreement on the gas issue.[40] Ukraine would begin paying off its debts for natural gas, consumed in November–December 2007 and the price at $179.5 will be preserved in the year 2008.[41][41] The presidents also decided to replace RosUkrEnergo and UkrGazEnergo by two new intermediaries, creating them as joint ventures of Gazprom and Naftohaz.[42]
At the end of February 2008, Gazprom threatened to reduce the supply of natural gas to Ukraine from 3 March 2008, unless the pre-payment for 2008 had been paid.[43][44] The Ukrainian government said it paid for the natural gas which was consumed in 2007, but refused to pay the bill for 2008.[45] A Gazprom spokesman claimed that 1.9 bcm of gas deliveries valued around $600 million still were not paid for by Ukraine. Ukraine disagrees with that debt claim as the debt that debt accumulated in recent months when Russia used its own gas to make up for a shortfall in less expensive Central Asian gas.[46] On 3 March 2008 Gazprom cut its shipments to Ukraine by 25% and an additional 25% the next day, claiming that the $1.5 billion debt still was not paid, although Ukrainian officials stated it had been paid.[47] Gas supplies were restored 5 March 2008 after Gazprom CEO Alexei Miller and Naftohaz CEO Oleh Dubyna agreed during negotiations by phone on a settlement to the crisis with gas supplies to Ukraine. On 6 March 2008 the Ukrainian cabinet refused to execute the gas agreements made by presidents Yushchenko and Putin. The Ukrainian cabinet did not want to pay in advance for 2008 and it opposed the creation of a Naftohaz–Gazprom venture that would sell gas in Ukraine.[48] Prime Minister Yulia Tymoshenko stated that Ukraine did not need any additional newly created joint ventures, and as of 1 March 2008, UkrGazEnergo is no longer operating in Ukraine's domestic gas market.[49]
The gas crisis of 2009 began with a failure to reach an agreement on gas prices and supplies for 2009. Ukraine owed a debt of $2.4 billion to Gazprom for consumed gas and Gazprom requested repayment before the commencement of a new supply contract.[50] In December 2008 despite Ukraine's repayment of more than $1 billion of its debt, Gazprom maintained its position intending to cut the supply of natural gas to Ukraine on 1 January 2009, if Ukraine did not fully repay the remainder of $1.67 billion debt in natural gas supplies and an additional $450 million in fines levied by Gazprom.[51][52][53] On 30 December 2008, Naftogaz paid $1.522 billion,[54] of the outstanding debt, but the two parties were not able to agree the price for 2009. Ukraine proposed a price of $201, and later increased their proposed price to $235, while Gazprom demanded $250 per 1,000 cubic meters.[55] Negotiations between Gazprom and Naftogaz were interrupted on 31 December 2008.[56]
On 1 January 2009, exports to Ukraine of 90 million cubic meters of natural gas per day were halted in full at 10:00 MSK. Exports intended for transhipment to the EU continued at a volume of 300 million cubic meters per day.[57] President Yushchenko requested that the European Union become involved in the settlement of this dispute in a letter to President of the European Commission Jose Manuel Barroso.[58] A Ukrainian delegation including Fuel and Energy Minister Yuriy Prodan, Deputy Foreign Minister Konstantin Yeliseyev, President's Representative for Energy Issues Bohdan Sokolovsky, and Deputy Head of Naftohaz Vadym Chuprun visited the Czech Republic as the EU Presidency and a number of the EU other member states in the first week of 2009 to hold consultations on the gas crisis.[59][60]
On 2 January 2009 Hungary, Romania and Poland reported that pressure in their pipelines had dropped. Bulgaria also reported that their natural gas supply was dropping, effecting the shipment of natural gas to Turkey, Greece and Macedonia.[61][62][63] On 4 January 2009, both by RosUkrEnergo and Gazprom filed lawsuits against Ukraine and Naftogaz respectively with the Stockholm Tribunal of the Arbitration Institute of the Stockholm Chamber of Commerce in Sweden.[64][65] Ukraine has also filed in lawsuits there.[66] According to Naftohaz, RosUkrEnergo owes the company $40 million for services in transportation of natural gas.[67] On 5 January 2009, Kiev's economic court decided to ban Naftogaz from transshipping Russian natural gas in 2009 at the price of $1.60 per 1,600 cubic meters per 100 kilometers. The court declared contracts made by Naftogaz for the transit natural gas through Ukraine void as the contracts were signed by Naftogaz without the authorization of the Cabinet of Ministers of Ukraine.[68] On March 30, 2010 the Stockholm tribunal ordered Naftohas Ukrainy to pay RosUkrEnergo around $200 million as a penalty for various breaches of supply, transit, and storage contracts.[69] On June 8, 2010 the tribunal ordered Naftohaz to return 11 bcm of natural gas to RosUkrEnergo. The tribunal further ordered that RosUkrEnergo would receive from Naftogaz a further 1.1 bcm of natural gas in lieu of RosUkrEnergo's damages for breach of contract.[70][69]
On 5 January 2009 Prime Minister Putin instructed the head of Gazprom Alexei Miller to reduce natural gas exports to Europe via transhipment through Ukraine by quantities equivalent to the amounts of gas which Ukraine had allegedly siphoned from the pipelines since deliveries ended on 1 January 2009.[71] On 7 January 2009, all Russian natural gas exports via Ukraine were halted amid accusations between the two parties.[72][73][74] Several countries reported a major fall in supplies of Russian gas starting from 7 January 2009; Bulgaria, Moldova, and Slovakia were among the most affected by these supply drops.[6][75][76]
Talks between Naftogaz and Gazprom resumed overnight on 8 January 2009.[72][77][78] Ukraine agreed to guarantee the unfettered transport of natural gas on the condition that Gazprom would guarantee and supply technical gas for Ukraine's gas transit system to function; this was denied by Russia.[79] The supplies to Europe were not restored although the European Union, Ukraine and Russia agreed to the deployment of a international monitoring group to the gas metering stations between Russia and Ukraine.[80][81][82][83] Naftogaz blocked the transit of gas, blaming a lack of pressure in the pipeline system and saying that because of the design of the Soviet-built pipeline it could not ship gas entering through the Sudzha metering station over the specific route to leave Ukraine through Orlivka metering station without cutting off the Donetsk region, Luhansk region, and portions of the Dnipropetrovsk region of Ukraine.[84][85][86] Instead of this route, Naftogaz suggested a technically more feasible alternative through Valuyki and Pisarevka metering stations but was refused.[87][88][89]
On 17 January 2009, Russia held an international gas conference in Moscow. The EU was represented by the Presidency, (the Czech Minister of Industry and Trade Martin Říman), and European Commission (the EU Energy Commissioner Andris Piebalgs), so that the European Union could speak with one voice.[90][91][92] Ukraine was represented by the Prime Minister Yulia Tymoshenko.[93] The conference did not achieve any solution to the crisis and the negotiations continued bilaterally between Prime Ministers Putin and Tymoshenko. Early 18 January 2009 morning after five-hour talks Putin and Tymoshenko reached a deal to restore gas supplies to Europe and Ukraine.[94][95] Both parties agreed that Ukraine would start paying European prices for its natural gas, less a 20% discount for 2009, and that Ukraine would pay the full European market starting from 2010. In return for the discounts for 2009 Ukraine agreed to keep its transit fee for Russian gas unchanged in 2009. The two sides had also agreed not to use intermediaries.[96][96] On 19 January 2009, Gazprom CEO Alexei Miller and the head of Naftogaz Oleh Dubyna signed an agreement on natural gas supply to Ukraine for the period of 2009-2019.[97][98][99] Gas supplies restarted on 20 January 2009 and were fully restored on 21 January 2009.[100]
According to the EU Commission and Presidency, the Russia–Ukraine gas disputes caused irreparable and irreversible damage to customers' confidence in Russia and Ukraine causing Russia and Ukraine to no longer be regarded as reliable partners.[86][88][92] According to reports, due to the gas crisis Gazprom lost more than $1.1 billion in revenue for the unsupplied gas.[101] Ukraine incurred losses as a result the temporary closure of its steel and chemical industries due to the lack of gas. Ukraine also lost $100 million of potential revenue in transit fees from natural gas would have otherwise been realized.[101]
There were also accusations of illegal siphoning of natural gas by Ukraine; however these accusations were not confirmed.[102][103] The issue of technical gas used to fuel compressor stations and to maintain gas pressure in the pipeline network remained unclear.[104][105] Some sources asserted that the responsibility for providing the technical gas falls to Ukraine,[106] while others say that this is the responsibility of Gazprom.[107]
There were several theories alleged political motives behind the gas disputes such as a Russia exerting pressure on Ukrainian politicians or attempting to subvert EU and NATO expansions to include Ukraine.[108][109][110] Others suggested that Ukraine's actions were being orchestrated by the United States.[83] Both sides tried to win sympathy for their arguments fighting a PR war.[111][112]
In August 2009 it was agreed loans worth $1.7bn would be lent to Ukraine to help it provide stable supplies of Russian gas to Europe by the International Monetary Fund, the World Bank, and the European Bank for Reconstruction and Development in return for reforms in Ukraine's gas sector.[1]
On December 28, 2009, Slovakian government announced that Russia warned it would stop oil supplies to Slovakia, Hungary, and the Czech Republic over a transit price dispute with Ukraine.[113] However the next day, Ukraine's Naftogas issued a statement confirming that Russia agreed to a 30% increase in the transit fees through Ukraine. The alleged rise in the tariff will be from $7.8 to $9.50 (or €6.6) per tonne of oil for transiting Ukraine in 2010. Additionally, unlike previous payments, new payments will be made in Euros as this was one of Ukraine's demands. Russia and Ukraine also agreed on the volume of oil to be transported through Ukraine. The overall amount of oil to be transported to Slovakia, Czech Republic and Hungary through Ukraine in 2010 will be 15 million tonnes - a decrease from 17.1 million tonnes in 2008.[114]
After meeting[115] her Russian counterpart Putin, Ukrainian Prime Minster Tymoshenko declared on 3 September 2009 "Russia and Ukraine, have agreed that at Christmas, there won't be any halt in gas supplies. Everything will be quite calm on the basis of the current agreements". Tymoshenko also said that the Ukrainian and Russian premiers had agreed that sanctions would not be imposed on Ukraine for the country buying less gas than expected and that the price of Russian gas transit across Ukraine may grow 65% till 70% in 2010.[116] A week before Gazprom had said it expected gas transit fees via Ukraine to rise by up to 59 percent in 2010.[8]
On October 8, 2009 Tymoshenko announced that Ukrainian 2010 natural gas imports will be significantly less than in previous years "because we have less need for natural gas". Because of its economic recession the industries require far less gas. In response to Tymoshenko Gazprom Chief Executive Alexey Miller stated that Ukraine should stick to the January (2009) contract for 2010.[11]
On November 16, 2009 Commissioner for Energy at the European Commission Andris Piebalgs stated that Russia and the European Union do not expect another gas conflict with Ukraine. According to him there were no gas price negotiations or questions other than that of gas payments.[117]
On November 20, 2009 the gas deal of January 18, 2009 was altered after a meeting between Tymoshenko and Putin in Yalta; meaning Ukraine would not be fined for buying less gas then the old contract stipulated, this was done in view of the 2008–2009 Ukrainian financial crisis.[118] On November 24, 2009 Gazprom and Naftohaz signed these supplements to the contract of January 19, 2009 on the purchase and sale of natural gas; according to the supplements, the annual contracted amount of gas to be supplied to Ukraine in 2010 has been set at 33.75 billion cubic meters (bcm), instead of the 52 bcm contracted earlier. The documents signed by the sides also stipulated that there will be no fines related to the amount of gas consumed by Naftohaz in 2009.[119] Over the first ten months of 2009 Naftohaz has purchased 18.85 bcm of gas with the contracted volume being 31.7 billion cubic meters.[120]
On December 15, 2009, Russian Energy Minister Sergei Shmatko stated he expects no problems with Ukraine over gas supplies at New Year.[121]
Ukrainian Prime Minister Mykola Azarov and Energy Minister Yury Boyko were in Moscow late March 2010 to negotiate lower gas prices; neither clearly explained what Ukraine was prepared to offer in return.[122] Following these talks Russian Prime Minister Vladimir Putin stated that Russia was prepared to discuss the revision of the price for natural gas it sells to Ukraine.[123]
On April 21, 2010, Russian President Dmitry Medvedev and Ukrainian President Viktor Yanukovych signed an agreement[124] in which Russia agreed to a 30 percent drop in the price of natural gas sold to Ukraine. Russia agreed to this in exchange for permission to extend Russia's lease of a major naval base in the Ukrainian Black Sea port of Sevastopol for an additional 25 years with an additional five-year renewal option (to 2042-47).[125] As of June 2010 Ukraine pays Gazprom around $234/mcm (thousand cubic meter).[126]
This agreement was subject to approval by both the Russian and Ukrainian parliaments.[125] They did ratify the agreement on April 27, 2010.[127] The Ukrainian parliament ratified it after several eggs were thrown towards the speaker, Volodymyr Lytvyn, by deputies and other incidents.[128][129][130] Opposition members in Ukraine and Russia expressed doubts the agreement would be fulfilled by the Ukrainian side.[127][131]
Yanukovych has defended the agreement has a tool to help stabilise the state budget.[132] Opposition members in Ukraine described the agreement as a "sell out of national interests".[132]